Currency Hedging for International Portfolios

45 Pages Posted: 19 Jul 2010

Date Written: June 2010

Abstract

This paper examines the benefits from hedging the currency exposure of international investments in single- and multi-country equity and bond portfolios from the perspectives of German, Japanese, British and American investors. Over the period 1975 to 2009, hedging of currency risk substantially reduced the volatility of foreign investments at a quarterly investment horizon. Contrary to previous studies, the paper finds that at longer investment horizons of up to five years the case for hedging for risk reduction purposes remained strong. In addition to its impact on risk, hedging affected returns in economically meaningful magnitudes in some cases.

Keywords: Exchange risk, Foreign exchange transactions, Foreign investment, International capital markets, Risk management, Multiple currency practices

Suggested Citation

Schmittmann, Jochen, Currency Hedging for International Portfolios (June 2010). IMF Working Paper No. 10/151, Available at SSRN: https://ssrn.com/abstract=1641006

Jochen Schmittmann (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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